Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Bertrand: Hi Nuno, how are you? 

Nuno: I’m well. 

Don Valentine’s passing and his jacket (01:29)

So today we’re going to start with some news, some sad news around venture capital with the passing of Don Valentine, the founder of Sequoia capital, obviously one of the household names in the venture capital community here in the Bay area and around the world.

Sequoia capital having become one of the most significant players in the venture capital space.  And Bertrand you actually met Don and Sequoia was an investor in your company? Some words around Don and around Sequoia?

Bertrand: Yes, I met him a few years back  at a private Sequoia event where he was, giving his jacket, the Don Valentine jacket to one exec who did a lot for  a Sequoia family portfolio company.

Nuno: And what is the Don Valentine jacket? 

Bertrand: It’s a nice looking colorful jacket, if I remember well .

Nuno: Does it have a specific meaning attached to it? Is it like someone that’s helped Sequoia or the portfolio company? 

Bertrand: I think it’s about someone who not only helped a portfolio company, but if I remember well, this person also helped quite a few other Sequoia portfolio companies, was available and open to meet with other fellow entrepreneurs, and that seemed to have been a tradition at Sequoia. 

The importance of targeting big markets (02:41)

Nuno: In the news we’re sharing this week is obviously, one of, his speeches at Stanford graduate school of business, around targeting big markets.

You know, obviously there’s a lot to be said about big markets. And I think in some ways there’s been a lot of emphasis in recent times in particular, in the seed stage, we will talk about, some news around seed in a bit, there’s a lot of focus on teams. Everyone talks about teams, we select teams, et cetera.

And obviously Sequoia does mention that. And , if you go to Sequoia’s website, there’s a huge focus on the founders that they back. But at the same time, there is this notion that markets are pretty important and pretty pervasive in what we’re looking at. So, how important was it, for example, for you, when you started thinking about markets, to really go after something that was untapped that was taking you to the next level.

How important is markets? I think there’s not enough discussion around it these days, strangely enough, certainly not in very early stage, which is a bit shocking to me. 

Bertrand: Yes. I guess that maybe really early on at the idea stage, maybe there is also a belief that founders are going to tweak the business, pivot the company.

That’s why market might not seem as important because they’re going to change markets pretty quickly. That’s true that I’ve seen that: a few entrepreneurs doing that. They talk about A, and one year, two after they are working on B. 

So it might make sense to be less focused on the market super early on.

But I think very quickly, market is a key part of the game at two levels. One that it’s big, but also that it’s growing. You want to have the wind in your back. 

Example of a big market: the App industry (04:16)

And, when I started App Annie, that was early on during the app revolution in 2010. So, just two years after the launch of the app store, for quite a lot of people, it was not clear if it would get, ever big. For me it was clear. 

Nuno: Well, I remember talking about it myself as the mobile app economy in 2009. And people laughed at me. 

And then a year later people were saying HTML 5 was going to win the day, and mobile web was going to take over it. 

And you know, at that point I was just an idiot and silly. And, obviously we met around that time and started working together around the mobile space. So apparently we weren’t wrong. 

Bertrand: Yes. That HTML 5 stuff going to take over apps. Actually Steve jobs started like this in 2007 when he launched the first iPhone.

There was no apps. It was “hey”, you want an app? Do your Web stuff, we’ll call it a web app. That worked for a year, and then they changed their mind at Apple. And I guess the rest is history. Truly no change there, actually, when the web keep falling down, mobile web is at best a stepping stone, to an app.

A few industries, e-commerce, news, probably still see it more than a stepping stone, but beyond that, it ‘s truly a stepping stone. So,  for me it was just that feature phones were going to be replaced by smartphones and having been in that space for a really long time, it was very clear that the way to deliver content was not working previously: from either mobile web, or the old apps that you could get from a Nokia phone.

That’s why it got me excited. That’s why I saw a future where every phone will be a smartphone and every smartphone will mostly work with apps. 

So when you are building your business on top of such a huge fast growing market, life is good, or certainly better than a smaller market or a market that is decreasing in size.

How big is your market? (06:00)

Nuno: I found the same, as a venture capitalist and looking at investments you really can’t second guess markets, right? So sometimes you go into a market that seems like a growing market, a big market, but once you do the basic math on it, once you do your total addressable market analysis, your SAM and SOM, right, where you get to a share of market. Sometimes you realize actually it’s not that big.

And even if you did incredibly well, you wouldn’t be a $1 billion company in that market. At any rate. And it’s really interesting when you probe some entrepreneurs around their analysis on total addressable market and serviceable market and share of market.

Even if they are actually quite conscious and do a bottom up. Sometimes they don’t even realize what the numbers actually mean and the attainment of them.

In my experience, I think to your point, if you have a huge amount of wind to take you forward, then there’s huge momentum on a platform. You win. 

And if you don’t, then effectively you’re out of the market or you really need to survive for a very long time. I think for me, one interesting counter market to, for example, the mobile app platform would have been the AR VR discussion where the attach rates of AR and VR devices very early on were very, very small. And still still to this day, they are. We’ll see what happens in the next one or two years. But certainly the issue is then if you are riding on that as a platform and as as your sort of market play, you really are going to have to wait a really long time to have any traction whatsoever, right?

You’re not going to have the wind on your side. It’s going to be against you all the time. 

Bertrand: And it’s very tough because if you try as a company to be successful with no wind in your back for 5 to 10 years, you’re not going to make it. So guess who are going to make it, if your market ultimately work out, would be some new guys who are still fresh, but have time starting their business one or two years before this stuff start to scale and go big.

So that’s the even worst story. Is that if you are really too early from a decade or five years, you will probably not make it, even if you have done all your very best for many years. So I think that’s something to be very careful.

When Silicon Valley gets markets wrong (08:02)

And I love your example about VR and AR because you can see, especially here in the Silicon Valley bubble, VCs specially, but also entrepreneurs always like to try to find out that new platform, that new stuff after PC, after web, after mobile. There must be something else. So is it VR, is it AR? Is it voice? The problem is that, as you say, if you take VR, the attach rate very low. You have just a few millions device, dozens of millions of device, but more important, people don’t even use them.

They stay in a box. I’ve got multiple VR headsets at home. I barely use them. 

Nuno: And you’re a nerd, right? You’re a very early adopter. So at the end of the day… 

Bertrand: I’m a crazy nerd.  I take it well. I accept this description. It lets me see a good perspective of what’s coming, but at the same time I use my business brain to try to think hard about: is it representative, does it work? What is the normal way to use this product? And you’re not going to put your VR headset five hours a day. And when you think about it, a phone is used 4 hours a day. There was this report from App Annie actually about gen Z, and we’ll talk more another time, where it shows that younger generation are spending 4 hours a day on their phone.

 You don’t do that with a VR headset, even if you improve the technology big time, or we are talking about a 20 year time frame.

So you have to be careful because we are in a place where people are going to push you to try whatever new platforms, in the belief that if this one catches fire, it will be good for you, but if it doesn’t, it’s probably a disaster.

So you have to think hard about that. 

The new early stage landscape: from pre-seed to Series A (09:31)

Nuno: So picking up on that point on the Silicon Valley bubble, since Don started Sequoia in 1972, the venture capital market has changed a lot. And maybe leading us into, the interesting report from Pear VC on the new Seed landscape.

Obviously a market that probably at its early stages, venture capitalists were really backing, people that had a chance and entrepreneurs that had a chance to make it big, but sometimes even at an idea stage, almost like an incubator in some ways. And that changed quite dramatically.

So the profile of risk taking in venture capital has changed quite dramatically. And there’s an interesting slide, on the new Seed landscape deck, which is slide 7 around how rounds have shifted between 2010 and 19. So we’ve seen this a bunch of times, but the really exciting two points that I take away from this, and this by the way, is actually an analysis done by Wing VC, by Rajeev and the team there. 

It’s actually mind boggling that in just almost a decade, actually less than a decade, the total funding raised before series A has gone from $1.3 million on average to $5.6 million on average. I was talking to Rajeev recently and he was telling me actually this analysis is focused on the top 21 venture capital firms in the Bay area.

So it’s not all the landscape, but really very focused on the 21 venture capital firms in the Bay area. The also interesting piece then is that the series A size has also increased dramatically . The interesting piece about this, is series A the bar has also changed dramatically in the decade where the percentage of companies that were backed with revenues at a series A in 2010 by these top 25 venture capital firms was 15% and now in 2019 it’s 82% so clearly whoever’s coming in at the series A, and these players that we’ve talked about the top 21 venture capital firms in the Bay area, normally our series A players are actually taking much less risk. They’re coming in with revenues, they’re coming in companies that are more established, that have raised more money. 

So this thesis I’ve had for a long time, and it woud be great to hear what your opinion is on it, is in some ways we’re getting a more granular market at the beginning of the life of a company where we have pre-seed and you have Seed and you have eed one post-Seed you have now pre-As, you have all this type of stuff, right? You had friends and family at the beginning. You have angel or super-angel investors in between, before the pre-Seed. You have a lot more granularity, but at the same time, the interesting piece is the risk profile is changing.

So it seems like the players in the market are actually taking less risk for later stage investing. And in some ways having more capital at the beginning is good for those players. I always say if you’re a venture capital firm and you’re focused in coming in more as an institutional investor, let’s say pre A, or at an A round, effectively there’s been a lot of de-risking because there’s been a lot of capital that has been deployed already before you come in.

So you’re sort of like “cherry picking”, I think is the analogy I normally say. So it’s like the funnel is becoming more aggressive, but it’s still the same funnel. It’s not changed dramatically in terms of the number of investments that are made by a lot of these players. 

Bertrand: Yes from my experience, I’m smiling because I did my Series A in China, it was 2011 with App Annie – it was with IDG capital. It was just a million dollar. 

Nuno: Today that would qualify as a pre-seed, I believe.

Bertrand: That would qualify as a pre-Seed today. Exactly in the range of the pre-Seed. So yes, it’s a big change. If I look at this report, actually slide 11  for me it’s pretty interesting because it’s showing what you just said, which is there’s has been a change in what it means to be Series A. Series A, in 2005 you were at the idea stage. In 2010 idea stage, no you don’t get Series A for that. Us we already had some market traction: free users, no revenues, but at least some free users, and that’s representative of what was 2010. You are Series A you had already some level of traction, and then 2019, it’s not just some traction, but you make some serious money in the B to B space we are talking about $1 million ARR or above. So my take is that if I, at least if look at my experience, Series A today used to be a Series B, where the level of risk is very different. And I think on these slides they show pretty well the story. You arrive at series A, once you have done the move from zero to one, and you are preparing for the hyper-growth stage.

So when your investor is a series A investor, definitely a lot of the risk level has disappeared. Not all of it: you don’t have a true management team, you have not shown how repeatable is your process at scale. There is quite a lot to be tested, but that basic product fit is there.

Nuno: So, two sides to this discussion. One side, I invest mostly in the software space historically, but more recently also in the hardware space, in the physical tech space.

And I think this curve is slightly different for hardware, maybe a little bit behind. So I think maybe a stage behind for hardware where effectively at the series A, you hope that they’ve already launched, there’s some early signals, but clearly is not ready for hyper-growth yet.  

And in software, I think because of the cost of developing software having come down so dramatically and maybe the curve of hardware not having caught up in the same way.

It’s certainly decreased the cost, but it hasn’t caught up in the same way. I think there’s a little bit of a lag. So the curve that we see here for hardware is probably a little bit more further skewed to the right. The interesting piece for me is, there’s obviously differences between the hardware and the software world, which are very obvious.

But there’s also another aspect for me that is really interesting, which is if you look at this reality where series A are being proceeded by a lot more capital and series A are higher and larger rounds, that obviously implies they have larger valuations as well, which we know. And so if that’s the case, effectively what we’re talking about is series A is taking less risk, but they’re probably taking much less upside as well. And so one discussion that one can have is what’s going to happen to the classic series A investors in the Bay Area : Benchmark, Sequoia, Kleiner Perkins, the players that have systematically owned that space or have had probably the stronger play in being in that space as household names.

Do they need to go into Seed or not. And we’re starting to see some interesting movements from some of these players. In the Seed stage where they’re actually locking in Seed and then series A, which is is a new trend we’re seeing in Silicon Valley you can come back to that in a second.

So maybe just to sort of go back, everyone says Seed is super, super crowded cause there are so many small funds running around and doing smaller checks. Maybe now it’s pre-Seed that’s super crowded because the checks have moved on. So Seed is now larger checks. But at the same time, if you look at sort of the classic household names of the Bay Area , they necessarily need to play in Seed because that’s where the returns have to be at this stage no ? 

Bertrand: I think that makes sense. I would tend to agree. You know there are some scout programs that have been launched by the big series A investors to invest at pre-Seed or Seed level. So I think that’s part of this trend, but that’s not as big as moving fully to Seed level, but you could argue they used to play in that space before. So is it really moving back to their roots? Actually, if they were to do more of Seed investment that’s actually a fair point.

Nuno: Yes. 

And I think there’s a lot of noise in different funds and what they’re saying they’re doing. And it’s actually very interesting because being inside the industry, sometimes the disadvantage is: you see the news and then you know the reality because you see rounds every day and you see people elbowing out other investors to get into rounds.

And you see how active some of these funds are in very early stages. I think the truth is most players are quite aggressive still, in coming coming a little bit earlier into Series Seed. So , although there’s a lot of noise in the market saying, no, no, we’re still series A investors, series B investors, and then we potentially will have growth funds later on for other types of investments.

The reality is we see a lot of activity around Seed, from some of these household names. Maybe to highlight just one that is probably less visible that I think is stuck to its principle of being a Series A investor, I’d say probably Benchmark has been the most disciplined in that sense from a market standpoint and just coming in series A, the 10 to $15 million series A, which now actually makes sense because.

Now series A are 10 to $15 million. million. And so they got it right. But even then, one has to wonder, you know, what will these players do going forward to compete for deals? Certainly I think it’s a really interesting movement in the market, and there are certainly changes to how these players play in those markets. 

Bertrand: And there is always the question of signaling, because if you are a Series A investor, investing at Seed stage, and you are not investing in the series A, what does it send as a signal? That signaling issue was there in the past with the scout programs, and on purpose they were trying to be very careful to separate the two.

But if you start to officially invest at Seed level, what signal are you sending? 

Nuno: And it’s even worse these days because you have what we call locked rounds. So you have people that come in at a Series Seed, they lead the Series Seed, and if they see that the company is evolving really nicely, they’ll do an internal round they’ll lead again, which is something we didn’t really observe that much, but now it’s becoming much more pervasive in the industry. Both A’s to B’s, Series Seed to series A’s and obviously that’s good for the entrepreneur because one would assume that at least the entrepreneur will have some leeway on the subsequent round to actually define more or less what the valuation will look like.

And it has the advantage of actually not going to the market.

He or she will have the advantage of not needing to fundraise actively because they can just cover it with some internal investors. But that’s clearly changed a lot. I think in particular over the last two years, where we see a lot more locked in rounds where you don’t even see the deal basically, where, the lead on the Seed leads the A, the lead on the A leads the B, and basically that’s it.

And so you have not seen that deal in the early stages at any given point in time. 

 Bertrand: I would just add that as an entrepreneur, you want to be careful about always coming with the same lead investor at every round. I think that’s a dangerous practice. You don’t get reality check coming from the market about your valuation, your state, how it’s doing.  So, maybe once you do it, at App Annie we did it for instance, once an internal round to do a quick acquisition. But I will say that if you have the time to do a proper fundraise, that’s probably best practice for entrepreneurs and investors to make sure you have, a new lead investor validating the price.

And also you as an entrepreneur, it’s good to have multiple investors and benefit from all of that collective wisdom. 

The Gross Margin Problem (19:47)

Nuno: Maybe switching gears to David Sachs article on the gross margin problem and this discussion, which is now very much of the day, because if WeWork, Uber and a couple of other companies around, are these tech enabled businesses? Are they tech businesses? 

They seem to have very different margin profiles, and some of these companies, have learned that the very hard way, in a very public manner. Any thoughts on that: unit economics and how they expand and whether you should be subsidizing unit economics or not, which is a point David seems seems to be very adamant, and particularly negative around that. 

Bertrand: It’s great to have David, telling his mind, publicly, not so many investors have done that. I mean, some at Benchmark for instance, but really not the majority. Usually they don’t like to talk about the negative stuff.

So it’s good to talk about that. I think the issue is that, the more that software is eating the world, software is going to touch more and more segments that are not pure software play. And that’s fine. The problem is that when you are misrepresenting, totally non-software startup, like WeWork as being a software startup.

Some others exist in a continuum. I think Uber, Lyft, Doordash, Postmates, there is some technology there. It’s tech enabled. You need drivers, you need users to have their smartphones for the system to work. WeWork you didn’t need any of this, so from that angle, it was pretty bad, this level of misrepresentation there, but I don’t think you want to throw the baby with the bathwater.

I think some companies like again, Uber and Lyft, yes their unit economics  might be different from a software company, but I still believe they are tech-enabled. So I think going forward, we will see more and more an analysis from investors and entrepreneurs alike about where do they stand in that continuum between truly 100% tech to 0% tech, and it might be 25%, 50%, 75% as long as everyone on the table agrees where it stands. And you can use metrics like gross margins or like a growth rate, like the type of business model, is it freemium, is it viral or not at all, to get a good sense about where does it stand on. From there, you can end up with a rational way to run the business with a rational valuation, and therefore ultimately you can build a company smartly, for the long run, as long as everyone is clear. But what is bad is when entrepreneurs and VC alike don’t really trully acknowledge the true type of business we are talking about. Then money will be burnt.

Nuno: I think there’s a couple of nuances that obviously this is a blog post, so it doesn’t have all the nuances that might go into a discussion, but there are two nuances that I think are interesting that David doesn’t really go into.

The first nuance is around maybe sometimes you do need to subsidize some of the unit economics and there is an expansion in volume of use that, over time, will allow you to do a readjustment of price. 

And I don’t think he goes enough into that discussion. It’s a little bit like saying if the economics are negative, if you increase volume, it’s always going to be negative.

It’s not necessarily always the case,because there’s a lot of things you can do around it. For example, Lyft being more aggressive around subscription based business models recently, et cetera. And the second part I think of the nuance that we really don’t go into here, is the expansion around other services.

And I think maybe with Uber and Lyft, that’s less visible. But certainly if we look at other places around the world, like Grab in Southeast Asia, sort of the up stacking of their own stack and the ability to do other things and be a payments company at the same time and having some aspirations to go beyond that, might be, I think a little bit misrepresented here as well.

So there there is a space here where sometimes just going after the unit economics isn’t always the right answer. I agree with him that we should be a lot more methodical in how we look at unit economics and not just feed more and and more cash to subsidize a business that ultimately cannot readjust in the future.

But I think there’s a little bit of lack of nuance there. The second second part where I do agree with him is, that people should pay a lot more attention to pricing , and recently I’ve had a lot of discussions with a couple of consulting firms that are thinking around the commercial excellence and the pricing space, and one of the things that is a little bit surprising to me is that there isn’t really a lot of focus around pricing in most companies in software as a service that I see here in the Bay Area. And if you think about it, you’re just leaving money at the table pretty early on, right? And sometimes it’s a little bit the notion of we need to sell, we need to sell quickly. We will sell it for whatever our clients tell us that we can sell it for. But you’re leaving money at the table, and sometimes it’s actually even worse than that. 

Back to David’s points, which is your establishing establishing a precedent on your pricing list. That you really can’t recover from, and if you’re selling something, I don’t know, I’ve seen things that are sold like 10 X below what they should be sold at, clearly, right? You could sort of look at the value, the price elasticity of that market. You’re just not only leaving price, leaving  the money at the table, so to speak, but it’s actually even more profound than that. It might take you sometimes a couple of years to even recover from that if you can ever recover in terms of pricing.

Now, obviously, App Annie software as a service company how do you look at that? How do you sort of make sure as an entrepreneur that you don’t make that mistake, that you don’t lose track of what really matters at the end, that unit economics will eventually matter, that pricing sets precedent, that you need to have the right type of pricing, et cetera.

Bertrand: I think that first, if you truly mispriced by 10 X, you are probably a dead company or soon to be dead, type of business because the smarter ones will not have mispriced by so much. But it happens. I’ve seen our competitors playing in the dirt cheap space, for instance, and they cannot grow their technology. They cannot properly grow their business. 

To go back to your point on pricing, what’s interesting is that, you know,  Uber launched recently their loyalty program, and  I happened to have the opportunity to discuss with one of the person who was behind this loyalty program.

And what’s interesting is, it really took them so long to put that in place, and basically it’s new management that seemed to have realized that, yes, we need to put in place these type of tactics. And I was personally quite shocked because it’s a tried and tested, and very well known tactics, especially for that type of business.

Every airline has a loyalty program, so why wouldn’t you put in place a loyalty program. Blows my mind that it took them so long, but I think we would see more and more of that. Postmates, DoorDash, for instance has a loyalty program. You have a subscription you can subscribe to. So this one is more subscription rather than loyalty, but I think we will see more of subscription.

We will see more loyalty program, and we will see changing the approach, but at the same time  I still think that David Sachs is right, unit economics don’t lie, at some point you cannot have stuff that is barely making some level of money on every ride or every delivery.

 It would just kill your business, and I don’t think it’s that easy to improve. And while I agree with the ideas that you can add new line of business, like Grab, I think you need to have a core business that’s decent. You cannot wait to be $1 billion plus revenue company.

Nuno: Well, we’ve just seen that you can’t really, because then you try to IPO, you And so I think that’s the good news here, because unlike in the famous contagion of the late nineties, and then the bubble bursting, after that, public markets have actually been very rational in saying, by the way, these numbers don’t work for us.

And retail, customers are not going to buy into this stock at that price because this doesn’t make any sense. And so in some ways that center of gravity, which is very shocking to us, has been public markets, the center of gravity that has pulled us back to sort of the fundamentals. 

Bertrand: And I think it was great news for entrepreneurs. The same way that I feel David Sachs is overall pretty optimistic for the end result, I think it’s good for everyone. It’s good for entrepreneurs in pure tech business.  And for people who are in partially tech business, they will from the get go have more rational expectations and valuation 

Non-obvious lessons on pitching (27:34)

Nuno: So maybe to the last one, James, from NFX on the 16 non-obvious fundraising lessons on pitching. I’ll let you go first and then I’ll go after that, because I see obviously a lot of pitches but you’ll tell me if you’ve made any of these mistakes, these 16 mistakes, or if you disagree with any of the 16 that he puts forward.

 Bertrand: So 16 lessons. Let’s go with the first one. “Don’t say sentences that don’t have numbers in them”. Yes and no. At some point you want to think strategic, you want to talk about market dynamics, development and stuff, and it’s, yes, of course, when you have to go into the nitty gritty details of the tactics of your business, he’s right.

But when you think strategically, you don’t always have numbers, and I’m a big fan actually, of having the right balance of qualitative analysis with quantitative analysis, and I think you really want to be careful there. 

 Nuno: I actually agree with most of them. I have to be honest, there’s a couple that seem a bit odd to me. The pitching being a full body experience.  

If someone  is standing up to pitch to me it’s a bit strange as well, when I’m normally in a room, we meet a lot of entrepreneurs at our boardroom , maybe at a coffee shop.

So this is a little bit odd, he later on talks about passion and show your passion, right? Which I think can be shown through, how you gesticulate how you interact, the words you use. So that one is a little bit funny to me.

Bertrand: I agree with you and I think you have to be careful about form versus substance as well. 

Nuno: Although I think one of the defining pitches, obviously, we at Strive Capital we’re investors in App Annie. And it was actually not very far from where we are recording this.

And I think you were standing actually when you did that pitch. So truth be told we did invest. So it was, it wasn’t that bad, but still feel it’s a little bit, it’s a little bit odd. I had a serious issue with another point point that he makes, I think the one third presenting, two third asking questions is incredibly difficult.

I personally have this issue. I mean, obviously I always save time for people to ask me questions at the end around our process. I’ll always introduce myself and the firm at the beginning, we’ll have a debate, et cetera. But it just feels to me like a little bit random that I would get mostly questions if I’m listening to a pitch.

 Maybe he has something something else in mind, and he’s talking about half hour meetings. I have to be honest, if it’s a serious meeting from me it will mostly be a one hour meeting at the end of the day. But again, there’s a lot of interesting points here in preparing a deck that’s a little bit more adapt to the VC that you’re talking to and knowing who are meeting. 

Bertrand: I think knowing who you are meeting is quite key.

I’m not sure you have to tweak your deck for every VC. I mean, at some point  that’s also one thing to be careful: you have to run a business. If your business takes a big hit because you keep optimizing like crazy for every VC you are meeting.  I would be a bit worried personally.

 If we’re talking about adding one slide, removing one slide, or just what he talks about, which is a constant improvement of your deck. Yes. I mean, you got good question. You don’t know how to answer. You prepare better so that next time you ready for it, that makes sense. But constantly tweaking , are you meeting the right VC in the first place if you need to keep tweaking.

Nuno: And at the end, we can call it whatever we want, but this is a sales pitch, right? And you know, as I always say, sales pitches, at the end become products, right? You’re doing a sales pitch.

You can have variations on it and make it look different and fresh and you can adapt, but they are actually products. You’re doing a sales pitch and you getting comfortable into it. So I think as much as you can iterate and improve, maybe you don’t need to be changing it all the time. 

 Couple of points, I would agree : bring your best presenters, and make sure that your best presenters are at the table is important.

I think sometimes people are very focused on:  bring my CTO because I need to bring my CTO. Sometimes you don’t need to bring your CTO to your first meeting. And maybe more more adequate to bring your CTO to a due diligence meeting where there is a technical discussion . So I think there’s a lot of truth in what he says. And I think just from my end to finish, the look the part part, I agree with him  and you should sort of be sharp and crisp and be professional. That said, in all honesty, if you show up to a meeting with me wearing a jacket or a blazer, I’ll find that really strange.

 Certainly in the Bay Area, I’ve actually written about it, the myths of the Bay Area, an article I wrote some years ago about that. We’ll be able to see you from a distance, that you’re not from here if you’re wearing something like that. But obviously, you know, nicely arranged, showing what your style is: maybe t-shirt, if it’s t-shirt, whatever. I pay attention if people have prepared themselves to be with me,  what they’re wearing, unless it’s something really weird like a suit in Silicon Valley, I think it’s probably less important me at the end of the day as well. 

Bertrand: I still remember 20 years ago, a business angel told me that I must not be a real entrepreneur because I was wearing a jacket. 

Nuno: And that changed your life. You stopped wearing jackets. 

Bertrand: I stopped wearing jackets. I guess so, but I felt so sad that someone would just look at your attire and make a conclusion like that, I’m not sure if this guy end up investing in a lot of good business, to be franck. But one part that is true, is that if you’re in a business that’s going to do enterprise sales,  at some point you have to more or less try to look like your clients , like they’re dressing. And I think that was  the old adage of IBM “big blue”.

You wear “blue” because your clients wear blue. And I think that’s the game you have to do, so if you are selling to this type of industry, media industry, or whatever industry. I think you want to adjust to that. I don’t think you want to adjust too much for VCs however. 

Nuno: I think that’s fair, but at the end of the day, let’s also be clear that I as a VC, when I meet you as an entrepreneur, I’m also trying to evaluate other things about you. I’m trying to evaluate what type of person are you?

Are you a gritty person or not? What type of culture are you building in your company? What type type of person you are, and sort of engaging with other people. Maybe if you’re an enterprise sales, how would you do enterprise sales? So I do agree with the par for the course type logic of how you  present yourself, in terms of how you dress, et cetera.

But at the same time, I also need to address your ability to pitch to others. 

And if if you look really odd, like again, suit on Sand Hill road and for example, example, I’m going to go extreme here. You’re doing a consumer software company, as like can this guy ever raise or this girl ever raise from someone else?

Maybe not. Right? It’s going to be difficult even just on the attire and how they present themselves. So again, I don’t think it’s a binary decision for me. I don’t ding anyone just on that. But it should sort of, feel to us, like you belong in your own sort of being in your own culture, and it’s sort of aligned and it works well  in whichever way you present yourself. 

Bertrand: I agree with that : that’s the same as your product should reflect what your users are going to expect, and if you go too wild about your product and it doesn’t connect with your audience, it’s not going to work well.

Airpods Pro (34:06)

Nuno: So news this week that Apple has launched their noise canceling AirPods Pro, I think Bertrand you were very early in Tweeting “Really cool really interesting but I’m not sure I need noise canceling for everything” and Tim Cook may actually have heard you because he posted something actually recently, I believe even today if I’m not mistaken, saying we believe that people will have different types of Airpods et cetera, and there will be situations where they will need noise cancellation and maybe not. Obviously Tim’s interest is very clear he wants to get more AirPods Pro and more Airpods and other things the hands of consumers but what’s your thinking about this? What do you think about this device and the launch? 

Bertrand: Yes, think two points: first I love my AirPods, I’ve been probably like you, Nuno trying to buy wireless Bluetooth earphones for like 20 years since it  first launched, I think by Ericsson,  and they were all bad, that’s as simple as that, they would fall from your ears, they wouldn’t feel comfortable, they wouldn’t connect to your phone, and for the first time ever with the AirPods it works perfectly, and actually it very rarely falls from your ears. So I think the format is absolutely fantastic now that the new version, the one launched a few months ago has more battery that’s also pretty big, but the truth is one reason I like my AirPods it’s because it doesn’t block all sound. So for me I would probably see that my AirPods, regular AirPods, would be my main ones, and once in a while I need noise canceling. So when I need noise canceling, however usually I’m in a moving environment, I mean: is it a train, is it a plane, and in that type of environment, Oh God, I don’t want one of them to fall and the probability for them to fall would be much higher, so I’m actually not sure – I think I would prefer my “over the ear” type of noise canceling headset it’s more comfortable on the long run, and also it won’t fall. So  I’m not sure I think they’re right to launch it, I think some people will like it, but I’m actually not sure I’m going to buy it.

Nuno: Interesting I was thinking about the same, actually I have been on this long quest, as you have, to find the ideal Bluetooth earbuds over the last few decades, and they’ve improved a lot, so I would say the current Airpods  from Apple are my favorite, I do have the Powerbeats Pro, so now I feel a little bit like maybe I shouldn’t have gotten them, and in particular the Powerbeats Pro have this issue which is: the case is super super big for you to carry around, which is just funny to me, I have Master Dynamic, the MW07s, I have Samsung earbuds, I have OnePlus Bullets Wireless, and it’s really interesting because I do think from just the user experience perspective, Apple really has the best user experience so a little bit intrigued  by this launch, and a little bit intrigued on how the AirPods Pro will really fit into my very large number of Bluetooth earbuds, but at the end of the day I think I agree with you, I’m not sure I will get them either in particular having just gotten the Beats recently. So we’ll see how they do, and how they fare in the market, really interesting maybe the next level for Apple, but I guess we’re a little bit neutral in it, to negative. We’re not really sure it’s gonna take off. 

Bertrand: Yes, probably. 

Nuno: It does show the future, maybe it does show where they go from here. 

Bertrand: Yes, and I think it’s fair with Beats they have other type of AirPods, they have the trendy ones, they have the sporty ones,  so  I think they are playing an overall good game, it was an obvious miss in the lineup, I don’t think it’s for me, probably not for you as you just said, but  they are filling their lineup, and as we know the wearable space for Apple is pretty big, it’s a big opportunity, it’s probably their fastest going segment with their services segment, so I think they are very right to invest and propose a large set of options. When I see some companies that are not proposing a large set of options, I’m not sure what they are doing because you have one brand, and you want to leverage it on as many options as possible – if you are known for audio, you have to have multiple versions. So I think it’s a good move but yes I agree that ultimately it’s not for us. 

Red’s Hydrogen One smartphone and lessons-learnt from its death (38:09)

Nuno: So with the birth of a new product, we have the death of a product, with Red’s Hydrogen One, the first world phone with an holographic display. 

Bertrand: Actually not the first, the first was the Amazon phone. 

Oh really, well they claim they were the first .

Amazon had their special four cameras on each angle, so that they can capture your eyesight and adjust the screen. 

Nuno: Why did it fail? And I mean more generically obviously I’ve worked in the consumer electronics industry extensively, having spent a lot of time  in Asia, what makes these devices fail, and what’s the lesson learnt from this. 

Bertrand: Yes great question: I think that price point $1,600 when consumers don’t know you, good luck with that, Red for those that don’t know it, it’s a very famous brand it’s big in Hollywood camera space, so they’re a great company delivering great products but consumers don’t know them, have never heard about them, so $1,600 bucks that’s a bad starting point. Two, you start with some weird, and Amazon has shown that it doesn’t seem to work, at least five years ago for them, weird way to try to present, in a 3D way your screen. I think it just a gimmick, people don’t care about that: it’s how fast, how good is the screen, that sort of stuff. And the last point, their big value add was supposed to be an add-on for a camera that never came. Now if you remember there is another one which tried to deliver some add-ons actually, not just another one, a few who tried to have add-ons and I think consumers don’t connect to physical add-ons that just connect to this particular phone or whatever.

Nuno: Motorola had a device with their moto and they still tried to push it for a while. Essential and with the 360 camera. 

Bertrand: Exactly, so my impression, and if you look at Apple actually it’s interesting, their best selling wearables are actually connected with Bluetooth. They don’t force you to plug some stuff that only work with one phone, that you can not connect to the later version of the phone for instance. So even Apple doesn’t dare to push you to do that, and if you want to adjust some lens to your iPhone for instance you can, and you can use the same for the next iPhone. So I think it’s not the right approach, and this is again a very very tough price point. Even Apple has trouble to sell their most highend iPhones. As we know it’s the iPhone 11 that’s selling more than the iPhone 11 Pro, and the same with  XR vs XS.

 Nuno: I am all for devices as you know because I actually collected /  hoarded devices for the last few decades as well, now I think at 240 devices, I think I should just basically donate them to a museum, it’s become more of hoarding than anything else. But even looking back at things like Modu which was this Israeli company that had this incredible technology of putting jackets on the phone that would transform the phone, I think the basic thing is a little bit back to your point, the device actually needs to be a great device. And it’s very difficult to do a great device. And I think we’ve seen some of the top vendors in the world struggle to put flagship devices out there that really works systematically. So even getting that device ready is something that’s very very difficult, and doing the core of what a device should do. I mean for example OnePlus I think is an incredible example on the Android space of putting out devices that systematically are amazing, because they do what they’re supposed to do: they have great cameras, very very snappy, they work with everything on Android. And that’s it. And in some ways it’s interesting because I love my Pixel phones and I’ve collected  all my Nexus phones from the beginning from Google’s earlier times, and I have my T-Mobile G1 and all that stuff, at the end of it I do think they have the better Android devices out there right now, because they really got the simplicity right and they have amazing amazing hardware against against it. Yeah and I think it’s 

Bertrand: Yes, I think ultimately price has to be reasonable and consumers are not easily fooled anymore in a way. They have been buying Smartphones for 12 years now. Maybe some are newer to cellphones but that’s less and less true, so they know exactly what is key for them: the right weight, the right screen size, all of this. People are more and more mature about this, so I think going with some weird stuff from an unknown manufacturer that is not selling a lot and that might disappear – why would people do that, when you have Samsung and Apple making you dream, with their TV ads, all this. It’s a big investment: five hundred, seven hundred, one thousand dollars, you don’t want to go random on that, and again if it goes “gimmicky”, good luck.

Nuno: And it’s a scale game right, and you need to understand the economics of this, as I said having worked quite a lot with large consumer electronics firms, the economics of smart phones actually works really well once you have several models: what we call variations, and you can reduce the cost of producing them, and that’s where you actually make your money. Sometimes as you were saying because you’re doing huge marketing to get a device to people in the market, that device itself almost makes no money right. But basically that creates the flagship play, and then you can sell all the other devices underneath it, and then in markets where carriers subsidize your devices you can get them into their line-ups et cetera. So there is a little bit of misunderstanding I think as well around what does the market look like and how does it scale.

Bertrand: And Nuno the worst part, at least in Smartphones, is that if you really really found something new, the next year or two, Samsung will have a similar device on the market, and in two or three years after your initial launch Apple will have one.  

Nuno: If you launch something new and it works. 

Bertrand: Yeah exactly that’s my point 

So if it doesn’t work you’re dead, and if it works actually you’re also probably dead, because the big boys are waiting for you to do some trial and error,  and will be able to fast follow, and I’m not even talking about the Chinese manufacturers who’ll have a product in six months. 

Nuno: Yes